MENA Quarterly: January 2020

Highlights

Oil markets have begun 2020 in an elevated atmosphere of geopolitical risk, centred on the MENA region. Unrest in Iraq, political disputes in Libya and tensions between Iran and the US have all thrust security over oil supplies from MENA firmly into to the forefront of markets. However, despite the proliferation of risk, oil prices have declined so far this year as otherwise bearish fundamentals weigh on the outlook for crude prices.

We started 2020 with a series of downgrades to this year’s GDP growth forecasts for the major oil exporters in the region, following OPEC’s December decision to deepen production cuts in Q1 2010.  However, we are more optimistic on non-oil sector growth - to varying degrees – across the GCC.  We expect the UAE and Saudi Arabia to see non-oil sector growth of 2.5% and 2.3% respectively this year, assuming fiscal stimulus in the UAE and fiscal consolidation in Saudi Arabia. 

The Central Bank of Egypt surprised by holding its benchmark overnight deposit rate at 12.25% at its January meeting. The CBE’s decision followed the sizeable uptick in y/y inflation in December, as previously favourable base effects passed through. Nevertheless, there was a positive message about private demand in the MPC’s statement, and we expect that looser monetary policy and government initiatives should give the private sector a boost in 2020.

Many countries in the MENA region remain fraught with social unrest, with Lebanon, Iran and Iraq in particular undergoing particularly difficult times. With government budgets under pressure, it is unclear how the respective administrations will be able to placate their protesters while keeping investors on side.

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